If you’ve ever looked at a stock you’ve seen the words ‘Market Cap’ or ‘Mkt cap’ come up. But what does that actually mean?
Market Cap is short for ‘Market Capitalization’ which refers to the actual value of the company. See, a stock is just one share - just one piece of a company. It’s not what the company itself is worth. To get the company’s worth you’d need to add up all of the shares together. That’s what Market Cap is. It’s the share price multiplied by the total amount of outstanding shares of stock.
The formula for market cap is:
Market Cap = share price x number of shares outstanding
Let’s take an example:
There’s a company with a stock price of $10 per share and there are 100 outstanding shares. What would this company’s ‘market cap’ be?
$10 x 100 shares = a market cap of $1,000.
Market caps are used to figure out a company’s size. A common misconception is that the higher the stock price of a company the larger the company is. That’s really not true at all! Apple ($APPL) is one of the largest companies in existence today, and yet their stock price as of today is just $116.03! To get the real picture of Apple’s ($APPL) size you’d need to look at their Market Cap - nearly $2,000,000,000,000!
In investing, companies are usually split up into 3 sizes: Large-cap ($10 billion and above)
Mid-cap (between $2 and $10 billion)
And Small-cap (between $300 million and $2 billion).
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